In 1995, the developing countries in Asia and the Pacific again outperformed all other regions with an economic growth of 7.9 percent, down slightly from 8.2 percent in 1994. Economic expansion in the People's Republic of China slowed to a still-high 10.2 percent, and in India declined slightly to 6.2 percent. The newly industrializing countries, Hong Kong, the Republic of Korea, Singapore and Taiwan Province of China, continued to restructure their economies and upgrade industrial technologies in the face of rising labour costs and as a group achieved slightly better growth than in 1994. All countries in Southeast Asia registered accelerated output expansion with the subregional average rising from 7.8 percent in 1994 to 7.9 percent in 1995, largely on the strength of economic activity in Malaysia, Viet Nam and Thailand. Overall growth in South Asia remained steady, slowing down in Bangladesh, India and Sri Lanka but accelerating in Pakistan. Regional growth is expected to continue to be strong but to slow to 7.1 percent in 1996 and then rising to 7.3 percent in 1997.20

The Asian developing countries have experienced a rapid expansion in exports since about the mid-1970s. Their export and income growth rates have consistently exceeded global rates and those of other developing regions. As a group, Asian developing countries have almost tripled their share of world exports. Since 1979, intra-Asian trade, excluding that with Japan, has increased more than eightfold and risen from 21 percent of developing Asia's exports to more than 35 percent. When Japan is included, almost half of Asia's exports are intraregional.

Greater market integration and trade liberalization facilitate technology transfer, specialization based on comparative advantage and improved resource pricing and management. Liberalization of foreign investment regimes has contributed to large increases in foreign direct investment flows, particularly to East Asia. Together with domestic investment, these liberalization efforts and the resulting foreign investment inflows continued to support sturdy export-led growth. The trend towards greater trade, and in particular greater intra-Asian trade, is likely to continue to drive economic growth in the region.

Over the past 15 years the economy of China has been booming, with average annual GDP growth of 9.4 percent and a declining incidence of poverty. The economy has opened up and attracted a large amount of foreign direct investment. Merchandise exports have grown rapidly as a share of GDP. The gradual deceleration of economic growth in China which began in 1994 continued through 1995 and is expected to persist over the coming two years. Investment remained high, at 39.5 percent of GDP in 1995, merchandise exports grew by 23 percent and inflation declined significantly but, at 14.8 percent, remains the highest among the major economies of the region. Reform of the state-owned enterprise sector remains a crucial priority.

In India, economic liberalization has been much more recent and performance more modest. However, in 1995 growth continued at a substantial 6.2 percent as favourable weather conditions led to increased agricultural production. The investment rate rose to 24 percent of GDP, reflecting both optimistic expectations and the continuation of the liberalization programme, and fiscal consolidation continued as well. Export growth remained strong at 21 percent, led by agrobased products, textiles, clothing and electronic goods, while economic liberalization has resulted in increasing imports of capital goods.

Growth in the newly industrializing economies was slightly higher in 1995 than 1994, but is expected to slow down in 1996 and 1997. On the strength of substantial exports and massive government expenditure on infrastructure, Hong Kong grew at 4.6 percent in 1995 and is expected to continue at roughly the same pace in 1996 and 1997. The Republic of Korea extended its economic rebound from 1994 to 1995 with 9.2 percent growth led by the industrial sector. Agricultural output grew at 6.1 percent in 1995. In Singapore, growth slowed from the double-digit rates of 1993 and 1994 to 8.9 percent in 1995.

The Southeast Asian economies share similar macroeconomic challenges, as well as rapid growth and high investment rates, but show a greater diversity in living standards and levels of development. Economic growth in Indonesia increased marginally to 7.6 percent in 1995, based on rapid growth in the industrial and services sectors and strong private investment growth supported by continued substantial foreign direct investments. The range of Indonesian exports has widened considerably in recent years and the share of manufactured exports in total exports has risen from 14.8 percent in 1980 to 78.3 percent in 1995, as the shares for agriculture and oil and gas declined. The economy of Malaysia grew at 9.3 percent with improved agricultural performance and strong industrial growth. The recovery of the Philippines economy, which began in 1992, continued in 1995 with 4.8 percent growth, as political stability, prudent macroeconomic management, the easing of some infrastructural constraints (especially power) and structural reforms helped to improve private-sector confidence and investment. Thailand grew by 8.6 percent in 1995, only slightly less than in 1994. In Viet Nam, GDP growth reached 9.5 percent in 1995, following growth of 8.8 percent in 1994, which was led by the industrial sector.

The countries of South Asia continue to rely on the primary sector for economic activity and export generation, and share relatively lower per caput income growth. In spite of stagnation in agriculture, strong industrial sector growth in Bangladesh kept the overall economy growing by 4.1 percent in 1995 and the strong performance of small-scale private enterprises is expected to continue to be the main engine of growth. Real GDP growth in Pakistan remained at 4.7 percent, primarily the result of the poor cotton crop. GDP growth in Sri Lanka remained constant in 1995 at 5.6 percent, but wide-ranging reforms in the trade and industrial policy environment should provide continued scope for exports and expansion of the industrial sector and supporting services. The principal issues facing South Asia are whether recent accomplishments in macroeconomic stabilization and structural reform can be sustained and improved upon and whether further liberalization efforts and transport infrastructure improvements will be undertaken.

Agricultural performance and issues

In China, the 1994 decline in agricultural output was reversed to 4 percent growth in 1995 and output is expected to rise by 4.5 percent in 1996, primarily the result of greater incentives provided by the government. Even so, cereal prices continued to rise in the first half of 1995. Grain coupons were reintroduced by some large and medium-sized cities to ensure that low-income groups would have access to foodstuffs. In general, the lagging agricultural sector needs further stimulation, not only to meet rising food requirements but also to address the widening income gap between rural and urban areas. The Ninth Five-Year Plan has again highlighted the need for agricultural land conservation, greater capital investment in agriculture and greater use of modern techniques for generating higher yields.

Departing from the recent trend, the Government of India raised the 1994-95 minimum support prices for wheat and barley by 3-4 percent and those of other cereals by 8-10 percent. With grain stocks at record levels, pressure to export increased. Consequently, on the trade front the government took further measures to promote cereal exports, abolishing the minimum export price for durum wheat, setting a 1994-95 export quota of 500 000 tonnes for common wheat and raising that quota for 1995-96 to 2.5 million tonnes. Rice exports have remained free from restrictions since late 1994, while 1994-95 export quotas of 50 000 tonnes each for maize, sorghum and millet remained about the same as the previous year. Efforts to increase exports of value-added and higher value agricultural products as a means of transferring the benefits of the liberalization process to rural areas continue to show success with increased exports of fresh fruit and vegetables, meat and meat preparations, processed fruit and juices, other processed food and floriculture products.

Agricultural output in Indonesia grew by 2.5 percent, recovering from its flood- and drought-induced poor performance of 1994. Import tariffs were lowered or abolished on maize, sorghum and barley. Rice production benefited from a higher paddy support price and from the introduction of drought-resistant varieties, while the government announced a US$900 million programme to improve irrigation for rice production on over 1 million ha. In order to increase rice procurement, higher procurement prices, lower procurement quality standards and a higher transportation subsidy were introduced.

The agricultural sector in Malaysia improved its performance in 1995, largely on the strength of the oil-palm, forestry and livestock (primarily poultry) sectors and as a result of improved export prices. Land under fruit production continued to increase dramatically. The price of wheat-flour was kept frozen during 1994-95, for the fourth year. As 1995 was the final year of the Sixth Malaysia Plan (five-year plan), major agricultural policy changes await the Seventh Plan in 1996.

Agricultural production in the Philippines suffered from poor weather and typhoons in the third quarter of 1995 are likely to have an adverse effect on agricultural results in fiscal 1996. With annual population growth of 2.4 percent, limited land available for cultivation and further economic growth and trade liberalization expected, agricultural imports are likely to increase rapidly. Domestic prices for rice, maize and sugar rose to at least double world prices in 1995, forcing the government to allow major imports of these sensitive commodities. Changes may be significant in 1996 as much of Philippine agricultural production (other than rice) that was formerly protected becomes exposed to world market forces through the implementation of the country's Uruguay Round access commitments.

The agricultural sector in Thailand grew by about 3 percent in 1995 with similar growth expected in 1996. Farm income has been rising as a result of the combination of firm primary product prices and increased productivity, while the continued boom in manufacturing is boosting consumption in urban areas. Import quotas have been raised for maize and rice, while a rice exporters' marketing subsidy has been implemented. In 1995 the government extended the coverage of its scheme of seed subsidies to promote increased use of high-yielding, hybrid rice seed. The Cabinet also approved a proposal to set up the country's first commodity futures exchange.

In Viet Nam, the agricultural sector grew more slowly than the industrial sector, but still increased by 3.5 percent. Further gains in the sector are likely to be greatest in industrial crops where export incentives continue to be exploited. New agricultural land-use tax policies, together with recognition of land transfer rights, should have a positive impact on the effective use of agricultural land.

In Bangladesh, bad weather conditions constrained agricultural output which contributes more than one-third of total output. The government froze the 1994-95 minimum support prices for both paddy and wheat. A fertilizer shortage during the dry season boro crop, following a disappointing main aman rice crop, resulted in agricultural sector growth of only 0.2 percent in 1995, well below even the relatively stagnant growth of 1.8 percent in recent years. The decline in crop production, however, was largely offset by strong growth of non-crop agriculture, particularly in fisheries and livestock.

The Government of Nepal adopted an Agricultural Perspective Plan in May 1995, calling for substantial investment in irrigation, fertilizer use and rural infrastructure.

In Pakistan, the continued failure of the cotton crop for the third year in a row has kept GDP growth low and could jeopardize fiscal stability.

State procurements of paddy in Sri Lanka had been minimal in recent years, as market prices have generally exceeded the minimum support price but, following a bumper paddy harvest in 1994 and lower rice demand, the Paddy Marketing Board stepped in to procure roughly 10 percent of the harvest and the government implemented seasonal import tariffs. Meanwhile, the ban on wheat-flour imports was lifted in early 1995. Commodity prices for tea, rubber and coconut are not expected to rise significantly over the next two years, and this will have an adverse effect on the agricultural sector of Sri Lanka.

Issues and prospects for regional agriculture

The rapid economic growth throughout much of East Asia has come at a high environmental cost. In urban areas, pollution and congestion are common. In rural Asia deforestation or desertification, groundwater depletion or contamination, soil salinity in irrigated areas, loss of biological diversity and erosion are some of the problems endangering agricultural productivity. A clear understanding of the extent to which these are necessary evils of development remains elusive, and in most countries an unconscious decision is being implemented to delay environmental protection or enhancement until some future, unspecified level of development is achieved. The fact that environmental protection is much cheaper and easier than rehabilitation is often given little consideration in the rush for income growth.

The massive extent of poverty in Asia and the complexity of the interactions between poverty and the environment make it difficult to predict the environmental effects of income growth. With higher income, there is the potential for greater mitigation of negative environmental effects, but there is also likely to be greater consumption and waste of environmental resources.

The Asian environment sustains more than half of the world's population, the majority of its poor population who depend on the rural environment for their survival and a large share of the world's biological diversity. In the Asia and the Pacific region, Australia, China, India, Indonesia, Malaysia and Myanmar have been classified as "megadiverse" by the Parties to the Convention on Biological Diversity because of the range of their plant and animal species. In spite of poverty and declining rates of fertility, from 1990 to 2010 developing Asian countries will add almost 1 billion new consumers to those already straining the earth's carrying capacity. Even in 2010, over half of the economically active population of these countries will still be involved in agriculture, implying further intensification of land and water use, with more mineral fertilizers and pesticides.

Asia is already the region with the lowest per caput fresh water availability in the world and the shortage is expected to worsen. At the same time the region has experienced a high level of soil degradation. Both domestic and international demand for agricultural products in Asia can be expected to increase pressure on the environment.

Concerns have been raised that China, in particular, will face rapidly growing demand for grain for food and feed at the same time as the agricultural resource base is declining or being degraded and the potential for yield increases is uncertain. Given the massive population involved, there are predictions that Chinese demand for grain imports could overwhelm world grain markets.21 Such studies are, however, generally based on little confidence in the ability of production to respond to policy reforms and market mechanisms. More carefully reasoned studies express greater optimism that world grain markets (and Chinese production) are not endangered.22

Over the last two decades, as the economic and environmental interdependence of developing economies in the Asia and the Pacific region has increased, so have their efforts towards regional and subregional cooperation. Prominent among these are the Asian Pacific Economic Cooperation Council (APEC) forum, the Association of Southeast Asian Nations (ASEAN), the South Asian Association for Regional Cooperation (SAARC), the South Pacific Forum and the South Pacific Commission. Subregional cooperation arrangements in Asia include the Southern China Growth Triangle, the Singapore-Johor-Riau Growth Triangle, the Tumen River Area Development, the Indonesia-Malaysia-Thailand Growth Triangle, the Brunei-Indonesia-Malaysia-Philippines East ASEAN Growth Area (BIMP-EAGA) and the Greater Mekong Subregion. These cooperative efforts aim at promoting intraregional trade and investment, as well as more efficient resource use in order to benefit the environment. They also provide fora for the discussion and planning of cooperative efforts for sustainable agriculture and use of the environment.

Most of the larger cooperative efforts have an Asian trade liberalization focus. For example, the APEC forum has plans for trade liberalization among developed members by 2010 and among developing members by 2020, the ASEAN Free Trade Area (AFTA) is currently under implementation and recently plans have been made for a South Asian Preferential Trading Arrangement among the members of SAARC. Most of the efforts involve gradual liberalization, so there is likely to be a correspondingly gradual contraction of output in more protected industries and expansion in those less protected. In the Philippines, simulation results suggest that trade liberalization will increase national levels of pollution from production by reallocating output towards logging, mining and agriculture and, within manufacturing, towards more pollution-intensive industries such as food processing, beverages and wood products.23

Trade policies can have unintended environmental consequences, even when applied for environmental purposes. Rapid deforestation has led to bans on log exports from Cambodia, Indonesia, the Philippines, Thailand and Vanuatu. Export restrictions to favour local wood processors in Indonesia, however, have been found to promote greater use of logs in production by lowering the domestic timber price, resulting in even greater environmental degradation.24 In this manner, proposals from richer, tropical timber importing countries to limit imports of tropical wood products to "save the rain forests" can actually lead to increased deforestation.

When property rights are poorly defined or when there is a common property resource, there is often a tendency to mismanage the resource because no proper price is paid for its exploitation. Even ownership and management by the government have not sustained healthy forest systems in much of Asia, while private, community-based tenure rights might improve forest management.

Property rights remain poorly defined in many areas of Asia and the Pacific. Inconsistencies in the treatment of squatters in the forests of Thailand have exacerbated deforestation both in that country and, through trade, in its neighbours. Land reform remains a critical issue to be addressed in the development of the Philippines.

Confrontation over the Spratley Islands, arguments over water flows to the Aral Sea and the 1995 seizing of Japanese fishing boats in the Pacific by the United States make clear that it is not only domestic but also international property rights that are unsettled. As populations grow and the demand for scarce resources increases, tensions over the assignment of property rights can be expected to increase.

The international efforts under way in various Asian and Pacific fora related to cross-border environmental interactions cover a wide range of activities, from capacity building and institutional strengthening to biological research, the control of cross-border movement of hazardous wastes, bans on driftnet fishing and efforts to slow global warming and protect the ozone layer. These efforts need to be intensified, given the urgency of many of the problems, their importance to regional and global food security and the tendency for international disputes to escalate if not resolved.

PAKISTAN

Economic developments

The political environment has been a continuing major influence in Pakistan's economic and social development. Lengthy periods of martial law have been interspersed with fragile elected coalitions since Pakistan's creation in 1947 when it split off from India. The country has borne a heavy financial and political burden from external and internal strife that continues today. Events which have greatly affected the ability to govern include the separation of the country in 1971 that created Bangladesh from East Pakistan, the influx of up to 3 million Afghan refugees seeking protection from the war with the former USSR, smuggling of drugs and other goods across borders, continuing disputes with India over Kashmiri allegiance and tensions among political factions, most recently in and around Karachi, Pakistan's major city and only port. The need to spend more than one-quarter of the government budget on defence in order to respond to these situations plagues Pakistan as it attempts to build much-needed public infrastructure, comply with lenders' demands for macroeconomic reform and address festering social and environmental issues.

Pakistan remains among the world's poorest countries, particularly in the rural areas where 70 percent of the population live. Real per caput income stands at US$430 (1993) despite having expanded at a healthy rate of 3.1 percent per year between 1980 and 1993. No official census of population has been performed since 1980, but the population is estimated at about 127 million (1995). The positive growth in per caput income has been achieved despite high population growth rates, but has not prevented the absolute number of poor in Pakistan from increasing.

Combating population growth has proved to be more difficult for Pakistan than for nearby developing countries because of the limited economic role and educational opportunities for women. At 6.2 percent, the fertility rate is the highest in the developing world outside Africa and the Near East. The female literacy rate is 20 percent nationwide, but much lower in some rural areas. One-third of girls enroll in primary school, but only 13 percent continue into secondary school. Pakistan is ranked 132 out of 173 countries in the UN Human Development Index and is particularly low in educational and health measures. Physical conditions are also poor: 20 percent of the population has access to sanitation (10 percent in rural areas); 80 percent has access to clean water (45 percent in rural areas); and only about 10 percent of villages have electricity. In all of these measures, Pakistan is substantially behind other Asian countries identified by the World Bank as having similar circumstances.25

The social and food security pressures created by population growth and the slow rate of improvement in education and health systems available to the poor and middle-class segments of society are looming as major issues to be dealt with in the latter half of the 1990s.

Pakistan achieved high economic growth rates throughout the 1950s and early 1960s caused by an influx of foreign aid following the separation from India, a low base of output in both industry and agriculture and agricultural sector growth spurred by green revolution innovations. Overall GDP growth was 6.1 percent annually during the 1960s. During the 1970s, the government aimed at creating conditions for the development of domestic industry and, in the process, changing Pakistan from a primarily poor, agrarian nation to a rapidly growing, industrial economy using modern technology. The government intervened heavily in the economy to transfer resources from agriculture to the nascent industrial sector, which was expected to have higher overall growth potential. During this period, agricultural output grew by 3 percent per year, while industrial output grew by 5 percent and overall GDP by 4.9 percent.

The government's emphasis was on import-substituting production in an effort to achieve self-sufficiency. Policies included nationalizing most major industries, imposing high tariffs and other barriers to trade to provide absolute protection from foreign competition, controlling input flows, establishing price controls and subsidies on consumer goods, increasing wages and deficit spending on a large scale for public investment projects.

Macroeconomic conditions and trends

As in many other developing countries, Pakistan faced deteriorating macroeconomic conditions after the oil price rises and global recession of the 1970s. At the start of the 1980s, the government deficit was 5 percent of GDP, the current account deficit was 3.5 percent and debt as a share of GDP was 40 percent.26 A structural adjustment plan was devised with the World Bank and the International Monetary Fund (IMF) in 1982 to correct these problems and begin to orient Pakistan's economy towards exports and more liberalized markets. Specific progress was made in liberalizing trade and foreign payments, privatizing banks and industry, relaxing restrictions on investment (both domestic and foreign) and strengthening the financial system.

All manner of aid packages were provided to Pakistan by international donors (see Box 11 for details) and a political consensus developed around the economic reforms promoted by international lenders.

BOX 11AID TO PAKISTAN UNDER STRUCTURALAND SECTORAL ADJUSTMENT PROGRAMMES DURING THE 1980s

Pakistan has availed itself of many types of loan packages available from multilateral donors.
The main thrust of the programmes has been to achieve more market orientation, develop infrastructure, modernize
and remove subsidies and trade protection. Specific lending packages included:IMF Structural Adjustment loan of US$1.6 billion in 1980;International Development Association (IDA) Sectoral Loan for Fertilizer of US$50 million in 1980;International Bank for Reconstruction and Development (IBRD) and IDA Structural Adjustment Loans of US$140
million in 1982;IBRD Sectoral Loan for Energy of US$178 million in 1985;IBRD Sectoral Loan for Export Development of US$70 million in 1986;IBRD Sectoral Loan for Agriculture of US$200 million in 1988;IMF Structural Adjustment Loan of US$515 million in 1988;Asian Development Bank (ADB) Sectoral Loan for Industry of US$200 million in 1988;IBRD Sectoral Loan for the Financial Industry of US$150 million in 1989;IBRD Sectoral Loan for Energy of US$250 million in 1989;ADB Sectoral Loan for Agriculture of US$200 million in 1989.

IBRD and IDA are lending arms of the World Bank.

Source: Qureshi, Pakistan Institute of Development Economics, 1995.

The macroeconomy grew by an average 6.3 percent each year during the 1980s, raising hopes that Pakistan would be able to imitate the "tiger" economies of Southeast Asia. The growth was fuelled by two factors not common to those countries. First, Pakistan exported labour in large numbers to the Persian Gulf and elsewhere, receiving in return US$2-3 billion per year in repatriated earnings. Second, the country borrowed heavily which allowed government spending increasingly to dominate the economy. These factors allowed some development of physical infrastructure and a gradual improvement in incomes. Sectoral growth was especially fast in utilities, construction and mining.

In spite of progress in specific sectors, Pakistan's overall macroeconomic picture worsened after the reform programme was instituted. By 1987 the government budget deficit had reached 8.5 percent of GDP - twice the average of Pakistan's Asian neighbours. Internal government debt totalled about 43 percent of GDP, with a roughly equivalent amount of external debt. Pakistan was saving about 13 percent of GDP (the developing world averages 23 percent) and investing about 18 percent. The difference between domestic savings and investment must be derived from foreign borrowing and investment. Compounding the pressure on the external balance were Pakistan's growing import needs and shrinking workers' remittances.

The burdens of Pakistan's cumbersome planning apparatus and its protectionist industrial policies were difficult to overcome. Fundamental macroeconomic conditions for sustained growth had not yet appeared. Bottlenecks in vital components of the economy and social deterioration began to be evident. Pakistan's manufacturing sector was heavily oriented towards the processing of basic commodities and the agricultural sector lacked the infrastructure and research base to maintain productivity growth. Both manufacturing and agriculture were dependent on a complex system of government-controlled inputs and inadequate infrastructure.

Recent years have seen fast growth in money supply, increasing inflationary pressures and declining confidence in government management. The inflation rate was kept in single digits during most of the 1980s, but has crept into double digits, hovering around 16 percent and more in the early to mid-1990s. The Pakistani rupee has steadily depreciated (by 52 percent between 1980 and 1992) since a managed float was adopted in 1982 and was further devalued in 1993 and 1995 as a result of continuing high domestic inflation rates.

Renewed IMF/World Bank structural adjustment programmes were instituted in 1988 and in February 1994 with the broad goals of improving the GDP growth rate, reducing the fiscal deficit, achieving full currency convertibility and reducing the current account deficit. The World Bank has also urged further deregulation and privatization of the economy, including more investment in social services and infrastructure for transport, communications, irrigation and energy. In addition, a Special Action Program (SAP), providing US$200 million from the World Bank and bilateral support from other donors, is intended to redress some of Pakistan's deficiencies in the important social and human resource areas. SAP focuses on basic education, primary health and nutrition needs, population planning and rural water supply and sanitation.

Two-thirds of the way through this programme some success is obvious on major macroeconomic variables. The budget deficit shrank to 5.5 percent of GDP in 1994, total expenditure dropped to 20 percent of GDP in 1994 and the current account deficit has almost halved to 3.6 percent of GDP. Savings and investment rates have improved slightly. While progress has been made, it has been slower than hoped. Interest and defence expenditures are still high and debt service consumes 34 percent of foreign exchange earnings. A higher level of urgency has been imposed in the past year as the IMF threatened to withhold financial assistance until further reforms were in place. As a result, there have been recent price increases in essential food items and electricity as the government attempts to reduce its deficit by cutting subsidies and other expenditures.

Importance of the agricultural sector

The agricultural sector is crucial from a social and economic perspective in Pakistan. It still provides one-quarter of the country's economic output, 50 percent of its jobs and 13 percent of exports. Agriculture is also the only significant employer of women, who constitute 16.5 percent of the paid labour force in agriculture. It is the main driver in the economy, as illustrated in 1993 when severe flooding and a cotton virus combined to cause a 5.3 percent decline in agricultural output and slowed overall GDP growth to 1.9 percent from 7.8 percent the previous year. Some 60 percent of Pakistan's manufacturing output comes from processing agricultural products and 70 percent of its exports are clothing and textiles.

Pakistan has an excellent climate and natural resource base for agriculture. The very warm summers and moderate winters provide two growing seasons for many crops and the topography throughout much of the country provides good conditions for a variety of agricultural products. Of the 31 million ha suitable for agriculture, 22 million are currently under cultivation.

Agricultural output grew at about 3 percent per year between 1970 and 1995, but is highly variable from year to year. The variability of Pakistan's agricultural output can be attributed to several factors, some of which are preventable, although they have recurred with increasing seriousness in recent years. These factors are flooding, pests and disease, uncertainty of input supplies and resource degradation. Such issues must be dealt with relatively quickly for Pakistan's agriculture to remain viable as a source of food for the population and a source of raw materials for the manufacturing sector.

One of the main features of Pakistan's agricultural sector is the uneven level of development which exacerbates weather-induced instability and creates wide gaps in productivity within the sector. Agriculture in Pakistan is still undergoing transition from traditional to modern methods of production. Government experts estimate that about 25 percent of farmers still use traditional methods such as oxen or hand-ploughs, about 55 percent use a mix of traditional and modern methods and the remaining 20 percent have adopted modern technology and equipment. As well as having an effect on the cost of production and, therefore, the government's level of support prices, the level of farming technology affects farmers' choice of crops, vulnerability to pests and disease, crop and livestock yields and, of course, income.

Past and recent trends in area, production and yields of major crops are shown in Table 4.

TABLE 4

Average annual percentage change in area, production and yield of major crops (1947-1988 and 1990-1994)

Area 1947-88 1990-94

Production 1947-88 1990-94

Yield 1947-88 1990-94

Wheat

1.68

0.62

2.35

1.24

4.02

0.63

Rice

2.35

1.15

4.52

7.00

2.17

5.82

Sugar cane

3.79

2.89

4.53

7.28

0.74

4.26

Cotton

1.94

0.61

0.14

-5.78

2.21

-6.36

TABLE 5

Imports of major agricultural products (1993)

Quantity (`000 tonnes)

Value (US$ million)

Edible oils

1 131

491

Wheat

1 408

240

Tea

112

182

Pulses

154

44

Sugar

48

15

Pakistan is nearly self-sufficient in most crops and livestock, but is incurring growing import demand for wheat, edible oils, sugar and tea. Imports of major agricultural products are shown in Table 5. The share of GDP contributed by agriculture has been declining gradually from 53 percent in 1947 to its current 24 percent. Nonetheless, it is of vital importance to Pakistan's macroeconomy as it provides raw inputs to the growing manufacturing sector and essential earnings from exports.

In addition to the contribution agriculture makes to the macroeconomy in Pakistan, certain agricultural products are important for social and political reasons. Wheat consumed in the form of bread is the most important component of the Pakistani diet, providing almost one-half of total calories consumed. The government continues to provide subsidies to maintain low prices for wheat-flour, even when it means importing wheat in bad crop years. During 1994, the government spent about US$14.4 million on subsidizing the sale at low prices of imported wheat. This represents about 40 percent of total wheat subsidies. Wheat imports in 1995 were only about
200 000 tonnes as the result of a good wheat crop, but structural problems in the sector still need to be addressed if Pakistan is to prevent rising import demand.

Food production per caput has grown by an average of 1.2 percent per year since 1979, barely meeting the needs of the increasing population. Malnutrition is still apparent in about 40 percent of children under five years. Per caput fat consumption is rising and adult nutrition meets minimum standards, but protein and calorie consumption have been stagnant since 1989. Inadequate consumption of dairy products and fruit occurs widely, although rural populations have better access to buffalo milk and cereals than urban dwellers, while the latter consume more meat. Milk and butter from buffalo are important in people's diets, especially the rural poor, and contain a higher fat content than cow milk products so provide a substantial share of dietary intake.

Other major agricultural products are livestock and dairy products, rice, sugar and cottonseed. While crops dominate the sector, livestock accounts for 33 percent of agricultural output. Minor agricultural products in Pakistan are pulses, fruits, vegetables, fish and forestry products.

Cotton plays a major role in earning foreign exchange for Pakistan by supplying the large textile producing industry. Output peaked in 1991 at 12.8 million bales but has suffered in recent years from flooding and then a serious infestation of cotton curl virus that the government is still attempting to eradicate. The government has had difficulty dealing with the problems in the sector caused by pests. It has tried and failed to introduce more resistant seed varieties and pesticides in a timely manner. Furthermore, while being cheap on export markets, Pakistan's cotton is not high quality and the sector faces growing competition in its export markets from India, China and Thailand.

Cotton manufactures have been under serious strain because of shortages of raw cotton. The cotton crop was 8.6 million bales in 1994 and Pakistan was forced to import a small amount. The combined capacity of
1 100 ginneries and 1 200 presses is about 12 million bales per year. Domestic cotton prices are high, but higher international prices have prevented companies from importing enough quantities to keep mills operating. As a result, there have been many temporary shutdowns of manufacturing facilities as companies have attempted to negotiate higher prices for their finished products.

Government intervention in the agricultural sector

As in other sectors of the economy, agriculture in Pakistan has been subject to a high degree of government influence and intervention. A combination of sector-specific, trade and macroeconomic policies has been used in an effort to maintain low consumer prices, achieve price stability for farmers and support the agricultural processing industries. Agricultural prices in Pakistan have traditionally been set below world prices and maintained through trade barriers. Since 1988, the government has renewed efforts to deregulate, privatize and increase exports. The economic reforms have concentrated on removing price and quantity controls and some of the rigidities caused by government involvement in transportation and distribution. Progress has been made in phasing out subsidies and directing a greater share towards consumers rather than farmers.

Nonetheless, the government remains an important force in the economy, both through its direct intervention and because of the lack of private-sector capacity to replace it for needed functions. Of all investment in the agricultural sector, the government contributed 33 percent in 1994, while the private sector provided the rest. The government share has increased since the mid-1980s as a result of the private sector's failure to take over some of its activities. Even with recent reforms, many prices remain fixed and provincial authorities often impose controls when they perceive commodities to be in short supply. The price support policy for major commodities remains an important instrument determining resource allocation and production levels.

The Agricultural Price Commission recommends support prices for all the major agricultural commodities (wheat, rice, cotton, sugar cane, grams, non-traditional oilseeds, potatoes and onions) each year before the planting season. The intention is to encourage production and protect farmers from cost increases. In establishing recommended prices, the Commission considers domestic and international market conditions, productivity trends, the cost of production and crop substitution potential, as well as the production targets set by the Ministry of Agriculture. For wheat price supports, the Commission also considers the impact of any price change on consumer budgets and the overall price level.

The support prices are intended to be minimum guarantees but can end up being the market prices faced by farmers because of the rigidities and market power held by the government in providing inputs and purchasing outputs of the sector. For instance, farmers generally have little storage capacity and will sometimes sell their products to the government at harvest when prices are low rather than risk losses from spoilage. On average, the government purchases 20 percent of wheat output each year and resells it to flour mills.

In addition to the support prices available to farmers, the government is still involved in setting some consumer and input prices. Both wheat and edible oils are subsidized to consumers. Wheat prices in particular have remained low relative to import prices and other grains. Much of the benefit of cheap wheat is received by foreign producers and flour millers, rather than consumers. This is because the price of wheat received by the farmer is determined by government decisions on import quantities. It has risen far more slowly than have the flour prices received by the mills.

Subsidies on pesticides and seeds have been gradually phased out, but water, credit and electricity are still subsidized. Subsidies were reinstated for fertilizer in 1995. Operation and maintenance of the irrigation system is to be paid for by charges levied by land area, but farmers have not been responsible for the capital costs of the irrigation system. Subsidies are provided for tubewell installation to farmers owning at least 5 ha of land. The government is also heavily involved in the provision of credit to the sector through determining the allocation of credit and interest rates and terms charged on agricultural loans.

The general level of tariffs and trade restrictions has been reduced (the maximum tariff rate was lowered to 65 percent in 1995 and is scheduled to be 35 percent by 1997), but specific trade price distortions are in place to help meet domestic needs. A growing demand for edible oilseeds has led to the imposition of an import duty as the government hopes to encourage domestic production, while the sugar processing industry is also protected through import duties. Wheat imports are subsidized and, until recently, rice and cotton exports were taxed as a means of earning revenue for the government. A special duty was imposed on cotton during 1994 because of the domestic shortfall.

The productivity problem

Pervasive government intervention has impeded the development of Pakistan's agricultural sector. The sector has achieved strong growth and kept up with demand because of favourable natural conditions and a large agricultural labour force working under poor social and economic conditions. Nonetheless, productivity in most products has lagged severely since the early 1980s.

There is potential for Pakistan's agricultural output to increase substantially from current levels, based on comparisons of average yields with international crop yields and those achieved by progressive farmers within the country. According to a study sponsored jointly by FAO and Pakistan's Ministry of Food, Agriculture and Livestock, wheat yields would rise by 50 percent if the practices of the progressive farmers were widespread.27 Another study claims that average farm productivity could be improved by at least 15 to 20 percent with proper application of inputs and improved farm practices.28 Yields from most crops have become relatively stagnant, except for rice, where new varieties were introduced, and sugar, which is heavily protected. Seed cotton is Pakistan's only major crop with yields close to average world levels.

Pakistan's agricultural sector has struggled to achieve the needed improvements in output to assure an adequate supply of food for the country's growing population. Beyond the price and trade policies that have generally penalized agriculture, other factors are important in determining the productivity of Pakistan's agricultural sector. They include:

fragmented landownership;

limited irrigation supplies;

inadequate social and physical infrastructure;

unavailable and low-quality inputs;

lack of information;

environmental degradation.

These conditions are at the root of Pakistan's comparatively low agricultural productivity and its poor prospects for maintaining self-sufficiency under conditions of growing demand. Each is briefly discussed below. The aggregate effect of these problems is a high level of on-farm and off-farm output losses, low yields in comparison with competing countries and a low level of responsiveness to government reforms and price changes. Total on-farm losses are estimated to be about 35 percent of output from a combination of uncertain and badly timed water, electricity and fertilizer supply and generally non-existent storage facilities. It is estimated that the poor quality of farm-to-market roads adds 30 percent to the cost of farm products as only about 18 percent of paved roads are in good condition.

To make matters worse, the agricultural sector faces tightening of some of these constraints. Growth in output of 55 percent over the decade of the 1980s was derived from a 13 percent increase in cultivated area, a 20 percent increase in water availability at the farmgate, an 80 percent increase in fertilizer use and a 260 percent increase in the number of tractors. Cultivatable land and farmgate water are constraints that have little potential for further increase, while fertilizers and the use of tractors appear to be reaching the limits of their high returns. In fact, excessive use of these inputs may be contributing to problems of soil erosion and degradation that could inhibit production.

Fragmented landownership. In spite of Pakistan's
highly concentrated landownership overall, fragmentation of landholdings is becoming a major problem. Some 80 percent of farms are less than 5 ha and 47 percent are smaller than 2 ha. The sharing out of land to many children increases the number of farms, thereby reducing the efficiency and deliverability of services. In general, the smaller farms have less access to credit, machinery and other productivity-enhancing inputs. In addition, they are risk averse, less diversified in crops and have less marketing flexibility. A limited availability of land titles, high transfer taxes, non-availability of credit for consolidation of land and restrictions on subdivision all inhibit change. There have been several half-hearted attempts at land reform since 1958, but little actual change. Understandably, people place high value on landownership for food security and because of insecurity about future government policies.

Limited irrigation supplies. Pakistan's weather would allow close to 200 percent cropping intensity in many areas but water limitations reduce it to an average of 116 percent. Rainfall is highly variable and seasonal, so Pakistan relies on irrigation fed by the Indus River. Pakistan possesses the world's largest contiguous surface distribution system with 36 000 miles (58 000 km) of canal conveyance and more than 1 million miles (1.6 million km) of water courses, channels and ditches reaching an area of 10.4 million ha. Some 78 percent of cultivated land is irrigated and the rest is rain-fed (barani lands). At present, 90 percent of output comes from irrigated areas, but estimates are that no more than a 10 percent expansion in irrigated area is possible and only at great cost. Even irrigation does not prevent seasonality; 85 percent of the system flow is in the kharif season and 15 percent occurs during the rabi season.

Reliance on the Indus River basin results in little control over supply, an inability to charge based on usage and high losses from uncontrolled flows. Water losses occur in three main ways; along the canal system, in the watercourses and on the farm. The efficiency of the system is estimated at about 35 to 40 percent. This figure compares favourably with irrigation systems in other countries, but degradation and lower recycling reduce what is available in Pakistan. Farmers are responsible for the maintenance and operation of the water courses, which are being lined through cooperative projects involving farmers and the government. About 25 percent of the water courses have been lined over a 20-year period.

Both water quantity and quality pressures are rising. Agriculture consumes more
than 90 percent of current water supplies, but urban and rural residential,
commercial and industrial needs are growing. In addition, water quality is degraded
by agriculture, as well as by other uses. About 25 percent of urban areas are not
equipped with adequate sanitation and only 3 percent of industrial users treat their effluent to international standards.

Farmers are becoming more aware of conservation and efficiency from intercropping, but many are at the mercy of a water supply provided by the Indus River. Most of the area where fresh groundwater is available has already been exploited with tubewells and private investment in tubewells is at about replacement levels. There is growing concern as well about infiltration from saline aquifers into fresh groundwater supplies because of the extent of pumping from tubewells. About 10 percent of cultivatable land is out of production as a result of severe salinization, while 5 percent of cultivated lands are in the same condition, leading to a total loss of crops. Another 10 percent of cultivated area is slightly or moderately saline with a resulting crop loss of one-third to two-thirds. Some secondary salinity is occurring.

The topography is relatively flat in many areas and the irrigation system was not designed to follow the land contours so water is not used in an optimal manner and drainage is poor. As a result, waterlogging of the soil is a serious problem. Over 20 percent of cropped land is somewhat or very waterlogged. System drainage construction is occurring slowly but increasing demand is outpacing the gains from improved drainage. Other measures being taken are programmes of soil conservation and watershed management but these are still small-scale.

Soil erosion is causing siltation in the reservoirs at a rate of 60 million tonnes per year. An estimated 11 percent of the reservoirs' combined storage capacity is expected to be lost by 2000. Storage capacity is important to the system as it is the only way to control water flows in heavy rain systems and to deliver water in a controlled manner.

Inadequate social and physical infrastructure. Social and physical infrastructure in rural areas is starkly inadequate in Pakistan and the services available in provinces and villages vary widely. Where education and health care are available, they often lack essential materials and trained personnel. A complex division of duties between the provincial governments and the national government in providing services and materials to agriculture exacerbates an already inefficient transportation and distribution network. Lack of physical infrastructure such as roads, stores, refrigeration units, refrigerated transport and cargo services at airports limits the ability of the private sector to modernize agriculture and deliver benefits back to farmers.

Unavailable and low-quality inputs. Power, credit, seeds, fertilizer and pesticides have been provided to farmers at subsidized rates, but are frequently not available when farmers need them and are of poor quality. Furthermore, widespread corruption, diversion and adulteration of materials have inhibited the development of efficiently functioning input markets and have led to the inefficient and inequitable delivery of essential inputs. Subsidies have been or are being phased out and farmers face rising prices without yet receiving the benefits of improved supply.

Agricultural credit continues to be heavily subsidized but inefficiently and inequitably. The problems include low allocations of credit (only 30 percent of demand is being met), improper and cumbersome disbursal mechanisms (only 75 percent of the funds allocated were distributed in 1994), corrupt banking practices, lack of technical expertise and antiquated systems. A combination of negative real interest rates and little enforcement of payment results in incentives for waste and the use of funds in an inefficient manner. On a broader level, the provision of about US$300 million in agricultural credit by the government at negative interest rates increases the money supply, worsens inflation and discourages saving.

Other credit policies affect agricultural productivity more directly. For instance, the same rates are charged on all banking loans and have in the past been made only with land as collateral, limiting availability to landowners. More recently, farmers with long-term leases are able to get credit on the basis of lease rights and have incentives to increase their output, while only 6 percent of sharecropping households have access to bank credit and have less incentive to invest in productivity-enhancing tools. Collusion between banking officials and large farmers has allowed the bulk of credit to be directed towards the large landholding families and farmers with greater political influence. The Agriculture Development Bank of Pakistan (ADBP) has recently streamlined its loan-making process, especially for small farms, through a "one-stop shopping" credit window and increased outreach to villages.

Another innovation to support rural development is a programme of small loans to women for cottage industry activities. The programme began in 1993 with 150 million rupees (US$4 million) available for loans. The use of female loan officers to seek out women interested in commercializing their handicrafts or other activities has successfully overcome the cultural barriers preventing women from obtaining credit and engaging in business. As with the Grameen Bank of Bangladesh, the repayment rate of almost 100 percent is far higher than the 60 to 80 percent for typical agricultural loans made by ADBP.

Lack of information. There is a serious information gap throughout the sector. Starting from a large cohort of semi- or illiterate farmers, who have few means of communication available to them apart from the extension agent on a motorbike, and ending with the agricultural research and teaching institutions that are rigid in their structure and completely autonomous in their operations, there is little sharing of knowledge. Information is shared primarily when farmers themselves gather after sunset to exchange progress reports. They are eager to replicate successes, but lack the technical expertise to find out why there are differences in yields among themselves. One study showed that the main sources of farmer information about crop technology are the radio and other farmers.

The agriculture extension programme is very bureaucratic. Subject matter specialists with training are not mobile and generally use field days to convey information. These are followed up by grassroots agents who are underequipped and have little education. They are required to visit large areas on motorbikes, which is slow and difficult during the rainy seasons. Even more of a problem is the lack of training and expertise they have. One-way information transfer is common and women and small farmers are often ignored.

Environmental degradation. A final problem that derives from most of those discussed above is environmental degradation. Its toll on agricultural production has not yet been quantified, but it appears to be increasingly responsible for poor results in the sector.

There is concern about aquifer contamination from heavy use of nitrate fertilizers and pesticides, and 75 percent of farmgate water is brackish. Farmers have had little training in fertilizer use, soil and crop requirements. They often apply whatever they receive; fertilizer use doubled between 1980 and 1993. As a result there is less application than is required for most crops, but excessive fertilizer use for cash crops such as cotton, rice, sugar cane, fruits and vegetables. Regulations about application are not enforced. Pesticide use has increased fivefold since 1981, but the low quality of the pesticides applied may be causing pest immunities.

Siltation and erosion may be factors in the flooding that destroyed the cotton crop in 1994/95. Unrestricted grazing adds to the problem. Most farmers do not have access to facilities for testing their soil, seeds, crops or livestock. This gives rise to recurrence and persistence of pests, disease and poor soil - problems that are undermining Pakistan's efforts to increase productivity.

In sum, slow growth in productivity is a complex issue requiring many different types of responses. Some experts in Pakistan are not optimistic, pointing out that even if government targets are met every year, food output may not keep pace with population growth. They estimate that production must rise by 4 to 5 percent annually to provide adequate food, excluding provision for losses. Others have pointed to the clear opportunities for improving yields and the management of farm systems.

The Government of Pakistan is taking measures to address these issues. It is focusing on introducing new high-yielding varieties to more areas, bringing irrigation to rain-fed areas and improving the availability of inputs. A high-level Agriculture Ministry official has declared that self-reliance in wheat can be achieved in three to four years by taking marginal lands out of production, more intensive cropping, efficient input use and encouraging wheat production while discouraging sugar production. The government retains primary responsibility for the provision of inputs, while relying increasingly on the private sector for output distribution. A high-level National Agriculture Coordination Committee is being established to accelerate current plans, such as the existing water management programme, and implement new ones.

It is clear that Pakistan's agricultural experts are aware of the steps necessary to improve productivity. At the same time, they face declining budget allocations to the sector, mandates to reduce government intervention and tightening resource constraints. The government recognizes that allowing prices to reflect comparative advantage better is a necessary but not sufficient condition for an efficient agricultural sector. It is also developing non-price policies to provide appropriate assistance in the form of increased information, research and testing tools and pollution prevention measures.

Progress and problems

As Pakistan moves through its second decade of economic reform, it faces significant opportunities amid growing obstacles. Major changes in economic policies and institutions have been accomplished and these will lead to the rationalization of prices and resource use, a stronger private sector and the ability to integrate into the global economy if they are maintained. The end result will be improved economic performance and increased investor confidence. The challenge is for the long-term benefits of economic reform to appear before the short-term problems of social, political and environmental deterioration become overwhelming.

Calls for increased social and development expenditures have been getting louder for several years as the country's economic conditions worsen and poverty grows. Nonetheless, many of the economic reforms pursued under the conditions imposed by international lenders have squeezed the bloated government sector. The plan has been to increase expenditure gradually in the needed categories while reducing expenditure on subsidies, defence and, eventually, interest payments. Cuts in government budgets are taking a heavy toll on agriculture. The allocation to agriculture has dropped in each of the five-year plans and the Eighth Five-Year Plan (1993-98) allocates only about 1 percent of the total to agriculture.

Rationalization of input prices and the trade regime will help agriculture survive the cuts in subsidies, but it will be effective only if the institutions for participating in the market economy are allowed to develop. The programme to remove trade barriers and protection for some commodities must be matched with provision of essential public goods and services. The most important of these are plant research and extension to reduce the devastating effects of disease on the sector, provision of insurance, credit and non-distorting price or income support to reduce vulnerability to supply-shocks and infrastructure for marketing and delivery of inputs and outputs. Other opportunities have been identified to develop production of fruits and vegetables, non-traditional edible oils and other crops that can tolerate the vagaries of water and soil conditions in certain parts of Pakistan.

Social and environmental problems are mounting in both rural and urban areas. They affect Pakistan's ability to produce and deliver food, as well as weakening confidence in the government. The highest priorities for the government are again in the area of basic public goods, such as education and health services; access to sanitation and clean water; development and distribution of technology and information for pollution prevention; and population control. There is some concern that an urban bias is increasingly depriving agriculture of adequate land and water resources in Pakistan. Regardless of the reason, social tensions are likely to mount as these natural resources become scarcer.

Pervasive problems affecting agriculture and other sectors which must be dealt with include smuggling, incentives for corruption and diversion of goods and bureaucractic inaction, including the enforcement of laws. The increasing political violence in Karachi and elsewhere presents a serious deterrent to foreign investment, as well as an uncertain trading environment at the port.

The government has taken action to resolve some of these problems, but this has not yet been enough. Spending on social programmes increased in 1994 by 33 percent to 2 percent of GDP, 72 percent of targeted industries have been privatized and investment is now allowed in previously closed sectors, such as banking, transport and power. There is a clear intention to improve the quality of public services and develop systems of resource protection and management. These efforts must all be continued and accelerated as population growth, economic reform and poverty are simultaneously addressed.

20 The economic growth rates and projections are based on Asian Development Bank. 1996. Asian Development Outlook 1996 and 1997.

21 For one of the more alarmist expositions of this view, see L.R. Brown. 1994. Who will feed China? World Watch, September/October 1994, p. 10-19.

22 See Box 15 on Prospects for China's grain trade p. 276.

23 P. Intal Jr. and P. Quintos. 1994. Adjusting to the new trade and environment paradigm: the case of the Philippines. Paper presented at a symposium in honour of Dr Gelia Castillo, Quezon City, the Philippines, 27 to 28 September 1994.